What Next?

[yugugelizer]

My wife and I have been saving/investing for the past 7 years. Overall, I think things have been going well and I have an "if it isn't broke, don't fix it" attitude. However, I was hoping to get some other opinions on where to go from here. Here is a little background:

2010 - Just me starting out
Salary: $23,000
Monthly Expenses: $1,400
EF: $1,200
IRA: $15,000
Taxable Invest: $5,000

2013 - Wife and I first full year after college graduation
Salary: $100,000
Monthly Expenses: $4,500
ST Savings: $4,500
EF: $14,600
401K: $18,000
IRA: $41,500
Taxable Invest: $15,600

Jan 2018 - Wife and I 30 years old with 10 year old son and newborn
Salary: $164,500
Monthly Expenses: $6,300
ST Savings (Gift, Vacation, Car, House): $16,200
EF: $9,100 (Savings Acct) $18,400 (6 6-month rolling CDs)
401K: $123,700 (Contribute 10%)
IRA: $92,400 (Max Annually)
Taxable Invest: $21,300 (Retirement) $12,000 (Rental Property)
Student Loans: $20,800 ($400/month - 6% Interest)
Car Loan: $15,100 ($450/month - 5% Interest)
House: $233,700 (Loan - 4.75% Interest) $290,000 (Value)

We are not too concerned with monthly spending as we invest approx. 25% and save approx. 10% of our monthly income (all bonuses go to savings/invest). Our goal is to retire around 55-60 with 1-2 vacation/rental properties. One thing we have been thinking about is meeting with a financial advisor, but I have asked a few people who have them and haven't heard anything to convince me it was worth the cost.

[disneysteve]

One thing we have been thinking about is meeting with a financial advisor

I'm not sure what your question is here. What advice are you looking for? What do you think an advisor can do for you that you aren't already doing quite well on your own?

My first advice would be to avoid financial advisors.

Beyond that, tell us what your concerns are or where you are unsure of how to proceed and we'll be happy to weigh in.

Based just on what you've posted, I would suggest dialing back the non-retirement savings and focusing on knocking out the debt. There's no reason to be paying 5 and 6% interest when you've got the funds to pay off those loans. You've got $43,700 in EF and ST savings. That's plenty for now. Stop feeding those accounts and start attacking the student loans. Once those are gone, pay off what remains on the car at that point. Your EF and ST savings aren't earning anywhere near 5-6% so continuing to add to those accounts while you carry that debt makes no sense at this point.

[yugugelizer]

I don't really have a specific question, just looking for other ideas/options to move toward our goals. I like the idea of slowing our savings and putting more towards debt. Sometimes it just takes someone else looking to point out easy changes. Thanks for taking a look!

[Jluke]

The rate on your car loan is high at 5%. Can you refi to a better rate (without extending the loan term) or pay it down faster?

Avoid a financial salesman.

2 kids: any college savings - 529 or other account?

[msomnipotent]

Sometimes you just want a pro to tell you that your plan is working and maybe give you a little pointers. If that is what you want from an FA, then it shouldn't be too much money to sit down with one. Just be sure to research before you chose one, and don't buy anything from them. As already stated, I would put my focus more towards paying off the loans and funding the 529's.

[Milly]

I second the comments about backing off liquid savings. You have quite a bit of debt still to knock out and a salary that should be able to do it. When you kill debt, it is effectively adding to your EF because your EF will stretch more months and any side gigs you have to take in an emergency will have more financial force.

I don't know where you live (please don't publish that online), but my local market has jumped up around 40% in the last 5 years. I wouldn't be surprised if the market will have a sizable downward move next (loosing the built in tax deduction, and poor national economic footing). If the market takes 20%, you are underwater.

Don't loose any company matching on your 401K, but the stock market has only been giving like 5% since we got on this bubble/crash/re-inflate cycle in 1995ish. Maybe you should even back off some investment while the market is so overpriced and you have that much outstanding debt. Why take risky 5% when you could take a guaranteed 5% knocking out your debt?

I'm not trying to make you feel trapped or depressed, but just letting you know you aren't in the clear yet. Keep pushing.

[yugugelizer]

A little late, but just wanted to thank everyone for taking a look and providing feedback. As I said, sometimes it just takes someone else taking a look. We had been pretty heavily investing and not too concerned with debt in our early years. We spent the last year or so paying down debt and paid off the student loans in February. The car loan will probably be next, though now it is two cars at a lower payment (my wife’s car was very old and my two-seater was no longer practical). However, we are waiting until things are more certain before we focus on that.

Which brings me to my next question - how much do you keep in cash?

I know the general rule (3-6 months EF), but we also have additional money in short-term savings (vacation, car, house), which brings us close to 1 year of expenses. In the current environment, I’m happy with this and am planning to maintain going forward since I feel like it gives me more confidence in maintaining my high growth portfolio. How do you determine total cash holdings?

[kork13]

Which brings me to my next question - how much do you keep in cash?

I know the general rule (3-6 months EF), but we also have additional money in short-term savings (vacation, car, house), which brings us close to 1 year of expenses. In the current environment, I’m happy with this and am planning to maintain going forward since I feel like it gives me more confidence in maintaining my high growth portfolio. How do you determine total cash holdings?

For short term cash, I generally just run it by each specific priority/goal. I don't restrict our cash as a % of our total assets, just build up whatever cash we need. 6mo emergency fund, car savings, property taxes, travel, house savings, and whatever else. Normally it ends up being ~$100k (~1.5x annual expenses), but that number is not intentional. It varies significantly based on what's going on in our lives and what we're currently prioritizing. Bottom line: do what's right for you & your needs.

[Jluke]

Pre-Covid my cash holding was around 40-45k.

I ramped it up to 60-65k now in cash.

just felt better having extra cash on hand (this is an all purpose holding. Not just EF)

[disneysteve]

Which brings me to my next question - how much do you keep in cash?

I know the general rule (3-6 months EF), but we also have additional money in short-term savings (vacation, car, house), which brings us close to 1 year of expenses. In the current environment, I’m happy with this and am planning to maintain going forward since I feel like it gives me more confidence in maintaining my high growth portfolio. How do you determine total cash holdings?

I'd say a 6-month EF, unless you have a reason for it to be longer (self-employed, already retired, unstable job situation), plus any near-term anticipated needs (vacation, car, etc.).

Personally, we're actually rather heavy in cash right now because I had made some adjustments to our investments over the past year or two. Plus we paid off our mortgage last summer so we've had that extra money available.

[ua_guy]

A little late, but just wanted to thank everyone for taking a look and providing feedback. As I said, sometimes it just takes someone else taking a look. We had been pretty heavily investing and not too concerned with debt in our early years. We spent the last year or so paying down debt and paid off the student loans in February. The car loan will probably be next, though now it is two cars at a lower payment (my wife’s car was very old and my two-seater was no longer practical). However, we are waiting until things are more certain before we focus on that.

Which brings me to my next question - how much do you keep in cash?

I know the general rule (3-6 months EF), but we also have additional money in short-term savings (vacation, car, house), which brings us close to 1 year of expenses. In the current environment, I’m happy with this and am planning to maintain going forward since I feel like it gives me more confidence in maintaining my high growth portfolio. How do you determine total cash holdings?

I realize your original post was 2-ish years ago. Great that you came back to follow up. You've got a great mindset and you're already cognizant of the metrics of saving, EF, expenses, etc. What stands out most is that you have a retirement GOAL. IMO it's impossible to save, strategize, and even spend without having framed the end-game. You have a goal, now it becomes about assigning metrics and numbers. Given your current track...will you meet, exceed, or fall short of those projections. That is the focus going forward.

To answer the question on cash, that is highly variable. In my mid 20's, 3-6 months of expenses felt sufficient and also aspirational. By 30, a solid 6 months felt absolute-minimum. Approaching 40, our savings account has become a dumping ground for assets in a series of huge life changes. Surviving the great recession and now enduring the pandemic and fallout that WILL be coming....I would feel insecure if we had any less than 3-years of absolute cash certainty that our position was unshakeable in the event of job loss or extreme recession.

In the late 90's as a teenager I was privy to my parent's finances while they were late-career. They seemed to never keep less than $100k in cash savings at least from the accounts I was able to see (I managed 'Quicken' software on the family computer for them). I've used that as my own personal reference and have exceeded that number; our savings is currently overkill given that we don't/won't have children and our house is paid for. Again, what you need in cash/EF is highly variable, but the 6-month EF is a widely discussed standard.

[disneysteve]

Again, what you need in cash/EF is highly variable, but the 6-month EF is a widely discussed standard.

I would also point out that Suze Orman has always used 8 months as her EF recommendation. And remember, it is referring to expenses, not income, and not including discretionary spending that you could easily stop if necessary.

[bjl584]

What next?

Work on paying off the car and the Student loans.

The rest of your financial picture looks pretty good.